Netflix’s latest subscriber growth is just the beginning: Analyst

Netflix stock soared following Monday’s after-hours earnings call, when the company reported a greater-than-expected number of new subscribers. But Michael Graham, managing director and senior equity analyst at Canaccord Genuity, said this is only the beginning.

“If you look at the penetration that Netflix has in all of the different … countries that it’s in, it’s still really early in terms of penetrating those audiences,” Graham, who specializes in internet and media companies, told CNBC. “They’re going to be able to continue to grow the subscriber base,” he said on “Power Lunch” Tuesday.

In fact, Graham said he thinks the company will add 70 million subscribers between now and the end of 2020.

“The most important thing is subscribers,” Graham said, pointing out that the strength of subscription growth stems from the entertainment company’s ability to produce great content. Last year, Netflix said it planned to spend between $7 billion and $8 billion on original content in 2018.

And while content and market spending are both increasing, Graham said, “the nice thing is that revenue’s growing faster and margins are going up.”

New subscriptions during the first quarter included more than 2 million new U.S. users and more than 7.4 million new international users — a growth increase of 50 percent compared with last year. In addition, earnings were in line with expectations and revenue was slightly above estimates, pushing the stock up more than 5 percent during after-hours trading Monday. On Tuesday, shares were trading at 226 times earnings and more than 20 firms upped Netflix’s price target, including Graham’s company.

Canaccord Genuity rated the streaming company as a buy and increased its price target to $350. Shares were trading around $337 midday Tuesday.

“[Netflix is] really one of the go-to places, if you’re a movie producer, or if you’re a creative talent that has a great show,” Graham said. “Netflix is going to be the place where you want to end up.”

“We think they’re going to be able to continue that,” he said.

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